2018 Proxy Season Preview (March 2018)

This year’s proxy season will once again bring attention to shifting investor priorities, with environmental and social (E&S) issues at the forefront of engagement discussions and shareholder resolutions. Changes over the past year to the policies and voting practices of several major index investors, along with a bold pronouncement by BlackRock that corporations should “serve a social purpose,” underscore this progression.How far this trend advances remains to be seen, but it will be a key development to watch throughout proxy season. Money managers are continuing to face pressure from social activists to align their voting practices with their stated positions on climate change—which was a driving force in catapulting three climate risk proposals over the majority threshold in 2017. More recently, elected officials have made demands that investment funds use their financial clout to pressure firearms companies to take steps to reduce gun violence. Activist hedge funds are also taking an increasing interest in corporate sustainability, which could lead to collaborations with other institutional investors on social responsibility campaigns.As in 2017, E&S themes will dominate the shareholder proposal landscape. Of the submissions that have been publicized to date, nearly two-thirds deal with E&S topics and one-third of those fall into the environmental category. Like past years, many of these can be expected to be withdrawn following productive dialogues and company commitments. Others may be less likely to survive no-action challenges as a result of more flexible guidance from the SEC regarding ordinary business and economic relevance exclusions.Filings of governance proposals will remain relatively low this season after reaching a high-water mark two years ago when there was a profusion of proxy access resolutions. Many standard governance measures—including proxy access—have already been widely adopted or are being addressed through engagement rather than proxy proposals.